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I just wanted to make a quick comment on asset sales. I know the issue is both infuriating and boring, but I’ll keep it short.

I was guided to this page on the Greens website to make a submission on the issue. I think the main points made by the greens as recommendations to include in a submission are pretty good, but they still miss the main issue. I am yet to find anyone commenting on the far bigger and more fundamental issue that underpins the sale of NZ Assets (Energy or otherwise). They all seem to get close, but no one that I have come across has pointed out that privatization fundamentally changes the nature and purpose of the core asset.

Consider this: An Energy company is founded and owned by the Government to satisfy the nation’s need for, say, electricity. This is done in the first instance because it is acknowledged that the nation can not function in the modern world without electricity, and the country’s economic wellbeing is dependent on it. The purpose of the Energy company is purely to supply electricity to the national grid, for use by everyone in the Country. That’s normal people, industry, everyone and everything. The cost of setting it up and operating the Energy company is covered by what it charges the users. This cost should be (in theory) set at a level that covers the costs of production, with no-one really making too much of a fuss if the government makes a bit of profit and puts it in its coffers.

The Energy company exists only to serve the needs of the people of the Country.

The Government realises, “well if this company is making us a profit, it must have a value greater than what we have paid for in setting it up and operating it. If we sell shares in the company (whether they amount to 1% or 100%) we can make more more money based on the market value of the Energy Company, than just on the product the Energy Company makes”.

Now at first glance this is all well and good. If in the current case the Government sells 49% of an Energy Company as shares on the open market, it still maintains control of the Energy company. But this isn’t about who controls the asset. This is about the purpose of the asset.

Once you start selling shares in a company, you are making promises to the new shareholders that the company is making a profit, and will continue to make a profit. Investors do not care whether the company supplies enough energy to its users to service their needs, or whether the price it charges its users is fair. All they care about is whether they make a profit. The larger the profit the better.

Suddenly the purpose of the Energy company has fundamentally changed. It now exists to make a profit for its investors and no longer to serve the needs of the people of the country.

So what about the fact the Government still controls the company through holding the majority of shareholders voting rights? Well control over voting rights doesn’t even come close to getting around the change in purpose.

If the Government for instance were to choose not to raise the cost of electricity to its users when all the other energy suppliers were doing so, and the minority shareholders took issue. The minority shareholders can require the Government to buy back their shares. The Government is bound by law to do that. At very least it would negatively effect the share prices and the value of the company. So in practice there is no benefit to the Government holding the majority of shares in a privatized asset. It is bound by pure economics to prioritize the pursuit of profit over supplying the service for which the asset was created. The private shareholders would be lining up to demand a refund of their investment otherwise, and the share prices would drop therefore defeating the purpose of privitizing the company in the first place.

It therefore follows that there is no such thing as “Partial Privatization” of public assets. They are either private assets which exist to make a profit for its shareholders, or it is a public asset that exists to service a specific need for the people and businesses of the country.